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Educate or Adjudicate? Socio-Economic Heterogeneity and Welfare

Listed author(s):
  • Bilin Neyapti

    ()

    (Bilkent University)

This paper presents a model to explore the welfare effects of the government’s choice over two types of public goods provision: domestic regulatory and security spending (adjudication) versus education. Output is a function of physical and social capital, both of which can be heterogeneous across the regions. Local social capital is exposed to spillover effects of other regions. Education spending increases social capital, whereas adjudication spending increases total factor productivity. The solution in an OLG framework indicates that the welfare maximizing ratio of education spending is negatively related with the past levels of social capital stock and the degree of social cohesion, but positively related with the current levels of aggregate income and the tax rate. Simulations of the model’s temporal solution reveal the short-run and long-run difference, reversing the positive effects of the tax rate and the income level, which is a crucial point. Income and cultural homogeneity are associated positively with the level of aggregate income and social cohesion whereas the relationship between income distribution and social cohesion is non-linear in the short-run.

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File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1526.pdf
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Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1526.

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Length: 21 pages
Date of creation: Nov 2015
Handle: RePEc:koc:wpaper:1526
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  1. Neyapti, Bilin & Arasil, Yavuz, 2016. "The nexus of economic and institutional evolution," Economic Modelling, Elsevier, vol. 52(PB), pages 574-582.
  2. Alberto Alesina & Enrico Spolaore, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1027-1056.
  3. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1203-1250.
  4. Rodrik, Dani, 1999. "Where Did All the Growth Go? External Shocks, Social Conflict, and Growth Collapses," Journal of Economic Growth, Springer, vol. 4(4), pages 385-412, December.
  5. Lange, Matthew K., 2004. "British Colonial Legacies and Political Development," World Development, Elsevier, vol. 32(6), pages 905-922, June.
  6. Alberto Alesina & Reza Baqir & William Easterly, 1999. "Public Goods and Ethnic Divisions," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1243-1284.
  7. Alberto Alesina & Roberto Perotti, 1995. "The Political Economy of Budget Deficits," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 1-31, March.
  8. Claudia Williamson, 2009. "Informal institutions rule: institutional arrangements and economic performance," Public Choice, Springer, vol. 139(3), pages 371-387, June.
  9. Collier, Paul & Hoeffler, Anke, 2004. "Aid, policy and growth in post-conflict societies," European Economic Review, Elsevier, vol. 48(5), pages 1125-1145, October.
  10. Montalvo, Jose G. & Reynal-Querol, Marta, 2005. "Ethnic diversity and economic development," Journal of Development Economics, Elsevier, vol. 76(2), pages 293-323, April.
  11. Sachs, Jeffrey D & Warner, Andrew M, 1997. "Sources of Slow Growth in African Economies," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 335-376, October.
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